M/s Colifornia Design & Construction INC India, Chandigarh V. ITO, Chandigarh

ITA 433/CHANDI/2008

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80910 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 year(s) 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2014
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 10-09-2014
• Assessment Year: 2001-2002
• Appeal Filed On: 08-05-2008
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Section: 44AD; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NOS.433 & 434 /CHD/2008 ASSESSMENT YEARS : 2001-02 & 2002-03 M/S CALIFORNIA DESIGN & VS. THE INCOME TAX OFF ICER, & CONSTRUCTION INC INDIA, WARD 3(2), SCO NO.8, AWXTOR 20-C, CHANDIGARH. CHANDIGARH. PAN: (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.R.SHARMA RESPONDENT BY : SHRI MANJIT SINGH, DR DATE OF HEARING : 10.09.2014 DATE OF PRONOUNCEMENT : 17.09.2014 O R D E R PER SUSHMA CHOWLA, J.M. : THESE TWO APPEALS FILED BY THE ASSESSEE ARE AGAINS T THE SEPARATE ORDERS OF THE COMMISSIONER OF INCOME TAX(APPEALS), CHANDIGARH EACH DATED 4.3.2008 RELATING TO ASSESSMENT YEARS 2001-02 AND 2002-03 AGAINST THE ORDER PASSED UNDER SECTION 144 OF INCOME TAX AC T, 1961 (IN SHORT THE ACT). 2. THE ASSESSEE IN ITA NO.433/CHD/2008 HAS RAISED T HE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE ORDER OF THE ASSESSING OFFICER AS UPHELD B Y THE COMMISSIONER OF INCOME TAX (APPEALS) CHANDIGARH IS BAD IN LAW AND I S BEYOND ALL THE CANNONS OF LAW AND JUSTICE. 2. THAT THE ORDER OF THE ASSESSING OFFICER AS UPHELD B Y THE. COMMISSIONER OF 2 INCOME TAX (APPEALS) CHANDIGARH IS BAD IN LAW AS TH E SAME HAS BEEN PASSED WITHOUT AFFORDING PROPER OPPORTUNITY TO THE APPELLANT. 3. THAT THE ORDER OF THE ASSESSING OFFICER AS UPHELD B Y THE COMMISSIONER OF INCOME TAX (APPEALS) CHANDIGARH COMPUTING PROFIT ON THE WO RK DONE BY THE APPELLANT @ 8% AS PROFIT OF THE WORK DONE IS B AD IN LAW AND NEEDS TO BE SET- ASIDE, MORE SO WHEN THE WORK HAS BEEN DONE THR OUGH THE SUB-CONTRACTOR WHICH FACT WAS ON RECORD OF THE ASSESSMENT AT THE TIME OF COMP LETION OF ASSESSMENT. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, DELETE, AM END ANY OF THE GROUNDS BEFORE THE APPEAL IS HEARD. IT IS, THEREFORE, HUMBLY PRAYED THAT THE ORDER PAS SED BY THE ASSESSING OFFICER AS UPHELD BY THE COMMISSIONER OF INCOME TAX (APPEALS) CHANDIGARH MAY KINDLY BE SET ASIDE AND WHOLE OF THE DEMAND MAY KINDLY BE DELETED. 2. THE ASSESSEE IN ITA NO. 434/CHD/2008 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE ORDER OF THE ASSESSING OFFICER AS UPH ELD BY THE COMMISSIONER OF INCOME TAX (APPEALS) CHANDIGARH IS BAD IN LAW AND I S BEYOND ALL THE CANNONS OF LAW AND JUSTICE. 2. THAT THE ORDER OF THE ASSESSING OFFICER AS UPHEL D BY THE COMMISSIONER OF INCOME TAX (APPEALS) CHANDIGARH PASSED U/S 144 DETE RMINING NET PROFIT @ 8% OF THE GROSS WORK DONE OF RS. 1,55,37,887/- IS B AD IN LAW IN VIEW OF THE FACT THAT THE PROVISIONS WITH REGARD TO THE DETERMI NATION OF PROFITS @ 8% U/S 44 AD ARE APPLICABLE ONLY IN RESPECT OF THOSE A SSESSEE WHOSE WORK DONE IS BELOW RS. 40 LACS MORE SO WHEN THIS HON'BLE TRIB UNAL HAS HELD IN THE ASSESSMENT YEAR 2000-2001 THE PROFITS AT 1.50%. 3. THAT THE ORDER OF THE ASSESSING OFFICER AS UPHEL D BY THE COMMISSIONER OF INCOME TAX (APPEALS) CHANDIGARH PASSED U/S 144 IS B AD IN LAW AS THE ASSESSING OFFICER HAS NOT CONSIDERED THE FACT THAT THE APPELLANT IS NOT A CIVIL CONTRACTOR WHICH FACT IS EVIDENT FROM THE DETAILS W ITH REGARD TO THE COST OF MATERIAL IN THE FORM OF CEMENT AND STEEL SUPPLIED B Y THE DEPARTMENT, BUT IS A CONTRACTOR OF SPECIAL NATURE HAVING SPECIALIZED WOR KING CONDITIONS AND HAS UNDER TAKEN THE WORK THROUGH THE SUB-CONTRACTORS HAVING S PECIALIZED SERVICES AS SUCH THE PROVISIONS RELATING TO THE APPLICATION OF RATE OF 8% ARE NOT APPLICABLE IN THE CASE OF THE APPELLANT. 4. THAT THE ORDER OF THE ASSESSING OFFICER AS UPHEL D BY THE COMMISSIONER OF INCOME TAX (APPEALS) CHANDIGARH IN NOT ALLOWING DEDUCTION FOR THE MATERIAL SUPPLIED BY THE GOVT. I.E. CEMENT AT RS. 3,78004/- AND STEEL AT RS. 58,0157- AND THE SALES TAX AT RS. 3,10,756/- IS BAD IN LAW AND NEEDS TO BE SET ASIDE. 5. THAT THE ORDER OF THE ASSESSING OFFICER AS UPHEL D BY THE COMMISSIONER OF INCOME TAX (APPEALS) CHANDIGARH IS BAD IN LAW AS TH E SAME HAS BEEN PASSED WITHOUT AFFORDING PROPER OPPORTUNITY TO THE APPELLANT. 6. THAT THE APPELLANT CRAVES LEAVE TO ADD, DELETE, AMEND ANY OF THE GROUNDS BEFORE THE APPEAL IS HEARD. IT IS, THEREFORE, HUMBLY PRAYED THAT THE ORDER PASS ED BY THE ASSESSING OFFICER AS UPHELD BY THE COMMISSIONER OF INCOME TAX (APPEALS) CHANDIGARH MAY KINDLY BE SET ASIDE AND WHOLE OF THE DEMAND MAY KINDLY BE DELETED. 3 4. BOTH THESE APPEALS RELATING TO THE SAME ASSESSEE ON SIMILAR ISSUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY T HIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 5. THE FACTS IN BOTH THE APPEALS ARE IDENTICAL. H OWEVER, A REFERENCE IS BEING MADE TO THE FACTS IN ITA NO.433/CHD/2008 T O ADJUDICATE THE ISSUES INVOLVED IN THE CASES. 6. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E WAS ENGAGED IN THE CONTRACT WORK OF GOVERNMENT OF HARYANA. THE ASSES SEE DURING THE YEAR UNDER CONSIDERATION HAD FILED RETURN OF INCOME DECL ARING TOTAL INCOME OF RS.1,98,380/-. THE TOTAL CONSIDERATION RECEIVED D URING THE YEAR WAS TO THE TUNE OF RS.58,95,571/-, AGAINST WHICH THE ASSES SEE HAD CLAIMED EXPENDITURE INCURRED ON THE SUB-CONTRACTORS FOR EXE CUTION OF WORK. THE ASSESSEE FOR THE UNDER CONSIDERATION HAD DECLARED N ET PROFIT RATE OF 3.07%. THE ASSESSING OFFICER, HOWEVER, REJECTING THE BOOKS OF ACCOUNT ADOPTED THE NET PROFIT RATE OF 8% TO DETERMINE THE INCOME IN THE HANDS OF THE ASSESSEE, WHICH WAS APPROVED BY THE CIT (APPEAL S) IN THE APPEAL FILED BEFORE THE TRIBUNAL IN ITA NO.433/CHD/2008 RE LATING TO ASSESSMENT YEAR 2001-02, VIDE ORDER DATED 27.11.2008. THE NE T PROFIT RATE WAS REDUCED TO 5%. THE REVENUE CHALLENGED THE ORDER O F THE TRIBUNAL BEFORE THE HON'BLE HIGH COURT, AND VIDE ORDER DATED 4.4.2011 IN ITA NO.400 OF 2009 , THE HON'BLE HIGH COURT SET ASIDE T HE ORDER OF THE TRIBUNAL OBSERVING AS UNDER: 7. A SIMPLE READING OF THE AFORESAID FINDING CLEAR LY SHOWS THAT THE TRIBUNAL HAD REDUCED THE NET PROFIT RATE TO 5% ON THE PREMISES THAT COUN SEL FOR BOTH THE PARTIES HAD AGREED FOR THE SAME. HOWEVER, A COPY OF THE ORDER O F THE TRIBUNAL DATED 11.2.2011 HAS BEEN PRODUCED WHEREIN THE DEPARTMENT HAD FILED MA NOS. 117 & 118/CHD/2009 IN ITA NOS. 433 AND 434/CHD/2008 BRINGING THE FACT TO THE NOTICE OF THE TRIBUNAL THAT THE 4 DEPARTMENTAL REPRESENTATIVE HAD NEVER AGREED FOR TH E CONCESSION AS RECORDED BY THE TRIBUNAL IN ITS ORDER DATED 27.11.2008. THE TRI BUNAL REJECTED THE SAID APPLICATION BY OBSERVING THAT THE CASE WAS DECIDED ON MERITS AND NOT ON THE BASIS OF CONCESSION OF THE DEPARTMENTAL REPRESENTATIVE. HOWEVER, THAT IS NOT THE FACTUAL POSITION, DISCERNIBLE FROM THE READ ING OF THE AFORESAID FINDING. 7. CONSEQUENT TO THE DIRECTIONS OF THE HON'BLE HIGH COURT THE APPEAL IS FIXED FOR HEARING BEFORE US. 8. IT WAS STRESSED BY THE LEARNED A.R. FOR THE ASSE SSEE THAT THE ADOPTION OF NET PROFIT RATE OF 5% BY THE TRIBUNAL W AS CORRECT AND THE SAME SHOULD BE APPLIED TO DETERMINE THE INCOME OF T HE ASSESSEE. 9. THE LEARNED D.R. FOR THE REVENUE POINTED OUT THA T THE SAID PROFIT RATE OF 5% APPLIED BY THE TRIBUNAL HAS NOT BEEN ACC EPTED BY THE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE AN D THE NET PROFIT RATE OF 8% AS APPLIED BY THE ASSESSING OFFICER SHOULD BE ADOPTED. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE NOT REJECTED BY THE ASSESSING OFFICER BUT ONLY THE ISSUE RAISED BEFORE US IS THE NET PROFIT RATE TO BE APPLIED IN ORDER TO DETERMINE THE INCOME IN THE HAN DS OF THE ASSESSEE. THE ASSESSING OFFICER HAD APPLIED THE NET PROFIT RA TE OF 8% WHILE COMPLETING THE ASSESSMENT UNDER SECTION 144 OF THE ACT AS THE ASSESSEE HAD FAILED TO APPEAR DURING THE ASSESSMENT PROCEEDI NGS. THE PROVISIONS OF SECTION UNDER SECTION 44AD OF THE ACT WERE APPLI ED TO THE CIVIL CONTRACTOR IN ORDER TO DETERMINE THE INCOME ASSESSA BLE IN HIS HANDS. 11. THE CIT (APPEALS) VIDE PARA 7 HAD NOTED THE FAC T THAT DURING THE YEAR UNDER APPEAL, THE ASSESSEE WAS THE MAIN CONTRA CTOR AND NOT SUB- CONTRACTOR AND ESTIMATION OF INCOME AT LOWER RATES IN THE EARLIER YEARS COULD NOT BE APPLIED. RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE 5 CHANDIGARH BENCH OF HE TRIBUNAL IN M/S SHIVAM CONST RUCTION COMPANY IN ITA NOS.383 & 384/CHANDI/2004, ORDER DATED 30.8. 2006 WHEREIN HE APPLICATION OF RATE OF 10% IN THE CASE OF CIVIL CON TRACTORS WAS APPLIED. THE SAID DECISION WAS CONFIRMED BY THE HON'BLE PUNJ AB & HARYANA HIGH COURT IN ITA NO.183 OF 2007 ORDER DATED 14.5.2007 . THE COPY OF BOTH THE ORDERS WERE ANNEXED AS ANNEXURE-1 AND ANNEXURE- II TO THE APPELLATE ORDER. THE RELEVANT PARAS OF THE DECISION OF THE TRIBUNAL AND HON'BLE HIGH COURT ARE REPRODUCED UNDER PARA 7 AT PAGES 4 T O 8 OF THE APPELLATE ORDER AND THE SAME ARE NOT BEING REPRODUCED FOR THE SAKE OF BREVITY. 12. IN THE FACTS OF THE PRESENT CASE BEFORE US THOU GH THE ASSESSEE HAD FURNISHED RETURN OF INCOME DECLARING THE NET PROFIT RATE OF 3.07%, BUT HAD FAILED TO JUSTIFY THE SAID RATE AS THERE WAS NO APPEARANCE BEFORE THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS . IN THE SAID CIRCUMSTANCES THE AUTHORITIES BELOW WERE LEFT WITH NO OPTION BUT TO ESTIMATE THE INCOME IN THE HANDS OF THE ASSESSEE BY APPLYING THE SUITABLE NET PROFIT RATE. THE TRIBUNAL IN THE FIRST ROUND HAD APPLIED THE NET PROFIT RATE OF 5% WHICH HAS NOT BEEN ACCEPTED BY TH E HON'BLE PUNJAB & HARYANA HIGH COURT IN ASSESSEES OWN CASE AND THE M ATTER HAS BEEN REMITTED BACK TO THE FILE OF THE TRIBUNAL TO ADJUDI CATE THE ISSUE. 13. IN THE TOTALITY OF THE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE NET PROFIT RATE OF 7% BE APPLIED TO DETERM INE THE INCOME IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, WE DIRECT HE ASSESSING OFFICER TO RE-DETERMINE THE INCOME CHARGEABLE TO TAX IN THE HA NDS OF THE ASSESSEE BY APPLYING THE NET PROFIT RATE OF 7%. THE GROUN DS OF APPEAL RAISED BY THE ASSESSEE ARE THUS PARTLY ALLOWED. 14. THE FACTS AND ISSUE IN ITA NO.434/CHD/2008 ARE IDENTICAL TO THE FACTS AND ISSUE IN ITA NO.433/CHD/2008 AND OUR DECI SION IN ITA 6 NO.433/CHD/2008 SHALL APPLY MUTATIS MUTANDIS TO ITA NO.434/CHD/2008 ALSO. 15. IN THE RESULT, BOTH THE APPEALS FILED BY THE AS SESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF SEPTEMBER, 2014. SD/- SD/- (T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 17 TH SEPTEMBER, 2014 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH